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Netflix CEO Reed Hastings just dropped a bombshell. In the wake of a rapid decline in Netflix’s stock price last week, Hastings is taking a bold step by separating the DVD and video streaming services. The DVD-by-mail service will now be called Qwikster, and the streaming service will maintain the Netflix brand. That’s right: the new business (streaming) will keep the existing name.

Customers can still subscribe to both, but the two sites will not be integrated anymore. Qwikster will also now offer video game rentals through the mail, a long-requested service. With this move, Hastings is reaffirming his long-held belief that streaming is the future of Netflix and the future of entertainment, and Wall Street can judge its progress by how well the streaming business is doing on its own. Separating the businesses will also force customers to make a choice, and it is obvious which choice Hastings wants them to make (hint: it starts with an “N”). Earlier today, I wrote a post beseeching Hastings not to listen to Wall Street after his stock got hammered. You’ve got to give him credit for moving fast in the direction where he thinks the greatest opportunity lies.

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.

Who knows how investors will react in the morning? But it is the right move.

The other thing that is worth noting about his announcement is that it starts out with an admission to his customers: “I messed up.” He is not saying that the price hike was a mistake, though, just that he should have explained it better. The two businesses are moving apart and it’s better to separate them now than wait for the inevitable. Below is a video with Hastings and Qwikster’s new CEO Andy Rendich explaining the change: